##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission File Number 0-51110
 VIACELL, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    04-3244816(State or Other Jurisdiction of Incorporation or
    
    (I.R.S. Employer Identification No.)Organization)245 First Street, Cambridge, MA
    
    02142(Address of Principal Executive Offices)
    
    (Zip Code)
 (617) 914-3400  (Registrants telephone number, including area code)
 
 þ o
  o o þ
 o þ




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##### Table of Contents



ViaCell, Inc.
Quarterly Report on Form 10-Q
For the Fiscal Quarter Ended June 30, 2006
 NOTE ABOUT REFERENCES TO VIACELL
  NOTE ABOUT TRADEMARKS
 ® ® sm
 NOTE ABOUT FORWARD-LOOKING STATEMENTS
  2




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##### 



TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets  June 30, 2006 and
December 31, 2005
    
    
    4Condensed Consolidated Statements of Operations 
Three and six months ended June 30, 2006 and June 30, 2005
    
    
    5Condensed Consolidated Statements of Comprehensive Loss 
Three and six months ended June 30, 2006 and June 30, 2005
    
    
    6Condensed Consolidated Statements of Cash Flows 
Six months ended June 30, 2006 and June 30, 2005
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48Item 3. Defaults upon Senior Securities
    
    
    48Item 4. Submission of Matters to a Vote of Security Holders
    
    
    48Item 5. Other Information
    
    
    49Item 6. Exhibits
    
    
    49Signatures
    
    
    50EX-31.1 Section 302 Certification of C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of C.F.O.
  3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 ViaCell, Inc.
 
 Condensed Consolidated Balance Sheets
 (amounts in thousands, except share data)
 (unaudited)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,932
    
    
    $
    33,138Short-term investments
    
    
    26,756
    
    
    
    27,406Accounts receivable, less allowances of $1,436 and $1,111 at June 30, 2006 and December 31, 2005,
respectively
    
    
    11,876
    
    
    
    13,736Prepaid expenses and other current assets
    
    
    3,215
    
    
    
    2,679Restricted cash
    
    
    162
    
    
    
    162Total current assets
    
    
    71,941
    
    
    
    77,121Property and equipment, net
    
    
    8,877
    
    
    
    8,702Goodwill
    
    
    3,621
    
    
    
    3,621Intangible assets, net
    
    
    2,722
    
    
    
    2,823Restricted cash
    
    
    1,944
    
    
    
    1,932Other assets
    
    
    31
    
    
    
    31Total assets
    
    $
    89,136
    
    
    $
    94,230LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt obligations
    
    $
    661
    
    
    $
    1,543Accounts payable
    
    
    1,671
    
    
    
    1,141Accrued expenses
    
    
    10,755
    
    
    
    7,706Deferred revenue
    
    
    6,706
    
    
    
    5,785Total current liabilities
    
    
    19,793
    
    
    
    16,175Deferred revenue
    
    
    12,103
    
    
    
    9,930Deferred rent
    
    
    3,705
    
    
    
    3,876Contingent purchase price
    
    
    8,155
    
    
    
    8,155Long-term debt obligations, net of current portion
    
    
    53
    
    
    
    84Total liabilities
    
    
    43,809
    
    
    
    38,220Commitments and contingencies (Note 4 )Stockholders equity:Preferred stock, $0.01 par value; authorized 5,000,000 shares at June 30, 2006 and December 31, 2005
    
    
    
    
    
    
    Common stock, $0.01 par value; authorized 100,000,000 shares at June 30, 2006 and December 31,
2005; issued and outstanding 38,374,069 and 38,117,725 shares at June 30, 2006 and December 31,
2005, respectively
    
    
    384
    
    
    
    381Additional
paid - in capital
    
    
    230,161
    
    
    
    229,955Deferred compensation
    
    
    
    
    
    
    (1,087
    )Accumulated deficit
    
    
    (185,433
    )
    
    
    (173,443
    )Accumulated other comprehensive income
    
    
    215
    
    
    
    204Total stockholders equity
    
    
    45,327
    
    
    
    56,010Total liabilities and stockholders equity
    
    $
    89,136
    
    
    $
    94,230
  4




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##### Table of Contents



ViaCell, Inc.
 
 Condensed Consolidated Statements of Operations
 (amounts in thousands, except per share data)
 (unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Processing and storage revenues
    
    $
    13,362
    
    
    $
    11,188
    
    
    $
    25,299
    
    
    $
    21,163Grant revenues
    
    
    177
    
    
    
    195
    
    
    
    320
    
    
    
    360Total revenues
    
    
    13,539
    
    
    
    11,383
    
    
    
    25,619
    
    
    
    21,523Operating expenses:Cost of processing and storage revenues
    
    
    2,536
    
    
    
    2,028
    
    
    
    4,864
    
    
    
    3,981Research and development
    
    
    3,660
    
    
    
    3,116
    
    
    
    7,126
    
    
    
    6,762Sales and marketing
    
    
    9,995
    
    
    
    6,076
    
    
    
    17,916
    
    
    
    11,645General and administrative
    
    
    5,013
    
    
    
    3,588
    
    
    
    9,650
    
    
    
    6,635Restructuring
    
    
    0
    
    
    
    90
    
    
    
    (180
    )
    
    
    211Total operating expenses
    
    
    21,204
    
    
    
    14,898
    
    
    
    39,376
    
    
    
    29,234Loss from operations
    
    
    (7,665
    )
    
    
    (3,515
    )
    
    
    (13,757
    )
    
    
    (7,711
    )Interest income (expense):Interest income
    
    
    803
    
    
    
    458
    
    
    
    1,527
    
    
    
    773Interest expense
    
    
    (17
    )
    
    
    (38
    )
    
    
    (43
    )
    
    
    (193
    )Total interest income, net
    
    
    786
    
    
    
    420
    
    
    
    1,484
    
    
    
    580Loss from operations before cumulative effect of
change in accounting
principle
    
    
    (6,879
    )
    
    
    (3,095
    )
    
    
    (12,273
    )
    
    
    (7,131
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    283
    
    
    
    Net loss
    
    
    (6,879
    )
    
    
    (3,095
    )
    
    
    (11,990
    )
    
    
    (7,131
    )Accretion on redeemable convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    987Net loss attributable to common stockholders
    
    $
    (6,879
    )
    
    $
    (3,095
    )
    
    $
    (11,990
    )
    
    $
    (8,118
    )Net loss per share:Net loss per common share, basic and diluted
    
    $
    (0.18
    )
    
    $
    (0.08
    )
    
    $
    (0.31
    )
    
    $
    (0.24
    )Weighted average shares used in basic and diluted
net loss per share computation
    
    
    38,367
    
    
    
    37,526
    
    
    
    38,329
    
    
    
    33,261
  5




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##### Table of Contents



ViaCell, Inc.
 
 Condensed Consolidated Statements of Comprehensive Loss
 (amounts in thousands)
 (unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (6,879
    )
    
    $
    (3,095
    )
    
    $
    (11,990
    )
    
    $
    (7,131
    )Foreign currency translation adjustment
    
    
    2
    
    
    
    (13
    )
    
    
    11
    
    
    
    (55
    )Comprehensive loss
    
    $
    (6,877
    )
    
    $
    (3,108
    )
    
    $
    (11,979
    )
    
    $
    (7,186
    )
  6




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##### Table of Contents



ViaCell,
Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (amounts in thousands)
(unaudited)
 Six Months Ended June 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (11,990
    )
    
    $
    (7,131
    )Adjustments
to reconcile net loss to net cash provided by (used
in) operating activities:Depreciation and amortization
    
    
    1,130
    
    
    
    991Cumulative effect of change in accounting principle
    
    
    (283
    )
    
    
    Stock-based compensation
    
    
    1,531
    
    
    
    794Reserve for bad debt
    
    
    777
    
    
    
    188Non-cash interest expense on related party notes
    
    
    
    
    
    
    87Loss on disposal of property and equipment
    
    
    
    
    
    
    17Tenant improvement allowance
    
    
    60
    
    
    
    Other
    
    
    4
    
    
    
    11Changes in assets and liabilities:Accounts receivable
    
    
    1,093
    
    
    
    (3,390
    )Prepaid expenses and other current assets
    
    
    (733
    )
    
    
    1,448Accounts payable
    
    
    507
    
    
    
    510Accrued expenses
    
    
    3,007
    
    
    
    335Deferred revenue
    
    
    3,094
    
    
    
    3,421Deferred rent
    
    
    (263
    )
    
    
    3,172Net cash (used in) provided by operating activities
    
    
    (2,066
    )
    
    
    453Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,204
    )
    
    
    (2,721
    )Proceeds from maturities of investments
    
    
    20,922
    
    
    
    14,346Purchase of investments
    
    
    (20,276
    )
    
    
    (17,734
    )Changes in other assets
    
    
    
    
    
    
    210Net cash used in investing activities
    
    
    (558
    )
    
    
    (5,899
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    49
    
    
    
    630Net proceeds from sale of common stock in initial
public offering, net of offering costs
    
    
    
    
    
    
    53,249Proceeds from refund of security deposit
    
    
    218
    
    
    
    Repayments on credit facilities
    
    
    (881
    )
    
    
    (822
    )Repayment of notes payable to related party,
including accrued interest
    
    
    
    
    
    
    (15,510
    )Payments on capital lease principal
    
    
    (36
    )
    
    
    (45
    )Net cash (used in) provided by financing activities
    
    
    (650
    )
    
    
    37,502Effect of change in exchange rates on cash
    
    
    68
    
    
    
    (109
    )Net increase (decrease) in cash and cash equivalents
    
    
    (3,206
    )
    
    
    31,947Cash and cash equivalents, beginning of period
    
    
    33,138
    
    
    
    6,746Cash and cash equivalents, end of period
    
    $
    29,932
    
    
    $
    38,693
  7




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##### Table of Contents



ViaCell, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (unaudited)
 1. Organization and Nature of Business
      2. Summary of Significant Accounting Policies
 Basis of Presentation
  8




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Use of Estimates
  Stock-Based Compensation
   Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2006Cost of processing and storage revenues
    
    $
    17
    
    
    $
    32Research and development
    
    
    136
    
    
    
    240Sales and marketing
    
    
    70
    
    
    
    127General and administrative
    
    
    597
    
    
    
    1,132Total stock-based compensation expense
    
    $
    820
    
    
    $
    1,531
 9




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##### Table of Contents



Three MonthsEnded June 30,
    
    
    Six Months EndedIn thousands except per share data
    
    2005
    
    
    June 30, 2005Net loss attributable to common
stockholders as reported
    
    $
    (3,095
    )
    
    $
    (8,118
    )Add: employee stock-based
compensation expense included in
reported net loss
    
    
    358
    
    
    
    792Deduct: total employee stock-based
compensation expense determined under
fair value based method for all
awards
    
    
    (1,144
    )
    
    
    (2,222
    )Pro forma net loss attributable to
common stockholders
    
    $
    (3,881
    )
    
    $
    (9,548
    )Basic and diluted net loss per share
as reported
    
    $
    (0.08
    )
    
    $
    (0.24
    )Pro forma basic and diluted net loss
per share
    
    $
    (0.10
    )
    
    $
    (0.29
    )
   10




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##### Table of Contents



Three Months ended
    
    Six Months ended
    
    Three Months ended
    
    Six Months endedJune 30, 2006
    
    June 30, 2005Option life
    
    4.57
    years
    
    4.57
    years
    
    5.00
    years
    
    5.00
    yearsRisk-free interest rate
    
    
    4.61
    %
    
    
    4.61
    %
    
    
    3.61
    %
    
    
    3.61
    %Stock volatility
    
    
    65
    %
    
    
    65
    %
    
    
    100
    %
    
    
    100
    %Dividend rate
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
   Six Months Ended June 30, 2006
    
    
    Six Months Ended June 30, 2005Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Number of
    
    
    AverageOptions
    
    
    Exercise
    
    
    Options
    
    
    ExerciseOutstanding
    
    
    Price
    
    
    Outstanding
    
    
    PriceOutstanding, December 31
    
    
    3,930,694
    
    
    $
    2.77
    
    
    
    4,455,538
    
    
    $
    2.28Granted
    
    
    507,625
    
    
    
    5.12
    
    
    
    212,200
    
    
    
    7.90Exercised
    
    
    (48,051
    )
    
    
    1.03
    
    
    
    (326,978
    )
    
    
    1.94Canceled
    
    
    (36,252
    )
    
    
    5.73
    
    
    
    (88,626
    )
    
    
    5.10Outstanding, June 30
    
    
    4,354,016
    
    
    $
    3.03
    
    
    
    4,252,134
    
    
    $
    2.53Exercisable, June 30
    
    
    2,275,932
    
    
    
    
    
    
    
    2,103,472Weighted
average fair value of options granted
    
    
    
    
    
    $
    2.88
    
    
    
    
    
    
    $
    7.07
 11




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##### Table of Contents



Options Outstanding at
    
    
    Options Exercisable atJune 30, 2006
    
    
    June 30, 2006WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    Remaining
    
    
    Average
    
    
    Number of
    
    
    AverageExercise Price

    
    Shares
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price$0.30

    
    
    1,380,043
    
    
    
    3.89
    
    
    $
    0.30
    
    
    
    1,080,043
    
    
    $
    0.300.75

    
    
    33,200
    
    
    
    4.60
    
    
    
    0.75
    
    
    
    33,200
    
    
    
    0.750.95

    
    
    119,986
    
    
    
    4.85
    
    
    
    0.95
    
    
    
    119,986
    
    
    
    0.952.00

    
    
    727,925
    
    
    
    5.47
    
    
    
    2.00
    
    
    
    201,925
    
    
    
    2.004.00

    
    
    47,275
    
    
    
    5.77
    
    
    
    4.00
    
    
    
    47,275
    
    
    
    4.005.00

    
    
    1,220,698
    
    
    
    7.40
    
    
    
    5.00
    
    
    
    645,638
    
    
    
    5.005.03

    
    
    267,000
    
    
    
    9.89
    
    
    
    5.03
    
    
    
    19,636
    
    
    
    5.035.21

    
    
    232,216
    
    
    
    9.67
    
    
    
    5.21
    
    
    
    15,756
    
    
    
    5.215.31

    
    
    138,250
    
    
    
    9.23
    
    
    
    5.31
    
    
    
    25,913
    
    
    
    5.315.62

    
    
    9,750
    
    
    
    9.44
    
    
    
    5.62
    
    
    
    1,435
    
    
    
    5.627.25

    
    
    25,000
    
    
    
    8.82
    
    
    
    7.25
    
    
    
    7,812
    
    
    
    7.258.17

    
    
    96,423
    
    
    
    8.52
    
    
    
    8.17
    
    
    
    63,677
    
    
    
    8.179.00

    
    
    7,000
    
    
    
    8.61
    
    
    
    9.00
    
    
    
    1,750
    
    
    
    9.0010.89

    
    
    40,000
    
    
    
    9.03
    
    
    
    10.89
    
    
    
    10,000
    
    
    
    10.8911.10

    
    
    9,250
    
    
    
    9.04
    
    
    
    11.10
    
    
    
    1,886
    
    
    
    11.104,354,016
    
    
    
    6.24
    
    
    $
    3.03
    
    
    
    2,275,932
    
    
    $
    2.34
  Net Loss Per Common Share
   12




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic and
diluted net loss per shareNet loss attributable to common stockholders
    
    $
    (6,879
    )
    
    $
    (3,095
    )
    
    $
    (11,990
    )
    
    $
    (8,118
    )Weighted average number of common shares
outstanding
    
    
    38,367
    
    
    
    37,526
    
    
    
    38,329
    
    
    
    33,261Basic and diluted net loss per share
    
    $
    (0.18
    )
    
    $
    (0.08
    )
    
    $
    (0.31
    )
    
    $
    (0.24
    )
  Three Months Ended June 30,
    
    Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005Options
    
    
    4,209
    
    
    
    4,143
    
    
    
    4,069
    
    
    
    3,869Warrants
    
    
    1,431
    
    
    
    3,600
    
    
    
    1,634
    
    
    
    3,604
 3. Accrued Expenses
  June 30,
    
    
    December 31,2006
    
    
    2005Payroll and payroll related
    
    $
    1,841
    
    
    $
    1,541Management incentive
    
    
    662
    
    
    
    881Professional fees
    
    
    2,378
    
    
    
    1,206Accrued marketing
    
    
    2,232
    
    
    
    1,260Accrued restructuring (Note 5)
    
    
    574
    
    
    
    632Deferred rent, current
    
    
    626
    
    
    
    619Accrued taxes
    
    
    370
    
    
    
    537Other
    
    
    2,072
    
    
    
    1,030Accrued expenses
    
    $
    10,755
    
    
    $
    7,706
 4. Commitments and Contingencies
 Agreements
  13




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14




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##### Table of Contents



Litigation
      15




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##### Table of Contents



5. Restructuring
  16




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##### Table of Contents



Balance, December 31, 2005
    
    $
    632Payments
    
    
    (58
    )Balance, June 30, 2006
    
    $
    574
 6. Recent Accounting Pronouncement
  7. Subsequent Event
  17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
 sm
  Revenues
  18




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Operating Expenses
   19




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##### Table of Contents



20




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##### Table of Contents



Results of Operations
 Three and Six Months Ended June 30, 2006 and 2005 (table amounts in thousands)
 Three Months Ended June 30,
    
    
    
    
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeProcessing revenues
    
    $
    10,822
    
    
    $
    9,349
    
    
    
    16
    %
    
    $
    20,433
    
    
    $
    17,668
    
    
    
    16
    %Storage revenues
    
    
    2,540
    
    
    
    1,839
    
    
    
    38
    %
    
    
    4,866
    
    
    
    3,495
    
    
    
    39
    %Total processing and
storage revenues
    
    
    13,362
    
    
    
    11,188
    
    
    
    19
    %
    
    
    25,299
    
    
    
    21,163
    
    
    
    20
    %Grant revenues
    
    
    177
    
    
    
    195
    
    
    
    (9
    )%
    
    
    320
    
    
    
    360
    
    
    
    (11
    )%Total revenues
    
    $
    13,539
    
    
    $
    11,383
    
    
    
    19
    %
    
    $
    25,619
    
    
    $
    21,523
    
    
    
    19
    %
    21




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Three Months Ended June 30,
    
    
    
    
    
    Six Months Ended June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeCost of
processing and
storage revenues
    
    $
    2,536
    
    
    $
    2,028
    
    
    
    25
    %
    
    $
    4,864
    
    
    $
    3,981
    
    
    
    22
    %
  Three Months Ended June 30,
    
    
    
    
    
    Six Months Ended June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeResearch and development
    
    $
    3,660
    
    
    $
    3,116
    
    
    
    17
    %
    
    $
    7,126
    
    
    $
    6,762
    
    
    
    5
    %
  Three Months Ended June 30,
    
    
    
    
    
    Six Months Ended June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeSales and marketing
    
    $
    9,995
    
    
    $
    6,076
    
    
    
    64
    %
    
    $
    17,916
    
    
    $
    11,645
    
    
    
    54
    %
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Three Months Ended June 30,
    
    
    
    
    
    Six Months Ended June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeGeneral and administrative
    
    $
    5,013
    
    
    $
    3,588
    
    
    
    40
    %
    
    $
    9,650
    
    
    $
    6,635
    
    
    
    45
    %
  Three Months Ended June 30,
    
    
    
    
    
    Six Months Ended June 30,2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeRestructuring
    
    $
    0
    
    
    $
    90
    
    
    
    (100
    )%
    
    $
    (180
    )
    
    $
    211
    
    
    
    (185
    )%
   23




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Three Months Ended June 30,
    
    
    
    
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeInterest income
    
    $
    803
    
    
    $
    458
    
    
    
    75
    %
    
    $
    1,527
    
    
    $
    773
    
    
    
    98
    %Interest expense
    
    
    (17
    )
    
    
    (38
    )
    
    
    (55
    )%
    
    
    (43
    )
    
    
    (193
    )
    
    
    (78
    )%Total interest income, net
    
    $
    786
    
    
    $
    420
    
    
    
    87
    %
    
    $
    1,484
    
    
    $
    580
    
    
    
    156
    %
   Liquidity and Capital Resources
   Six Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2006
    
    2005
    
    $ ChangeNet cash provided by (used in)
operating activities
    
    $
    (2.1
    )
    
    $
    0.5
    
    
    $
    (2.6
    )Net cash used in investing activities
    
    
    (0.6
    )
    
    
    (5.9
    )
    
    
    5.3Net cash provided by (used in)
financing activities
    
    
    (0.7
    )
    
    
    37.5
    
    
    
    (38.2
    )Cash and cash equivalents, end of period
    
    $
    30.0
    
    
    $
    38.7
    
    
    $
    (8.7
    )
  24




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Commitments and Contingencies
 Agreements
   Legal Proceedings
   26




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27




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Critical Accounting Estimates
  Accounting for Stock-Based Compensation
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Other
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Investment Risk
  Foreign Exchange Risk
  Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 NOTE ABOUT FORWARD-LOOKING STATEMENTS
  We expect to continue to incur operating losses and may never become profitable.
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We may not be able to sustain our current level of revenues or our recent growth rates.
  If we do not prevail in the PharmaStem litigation, we may be prevented from selling our ViaCord
product, or may have to incur significant expenses.
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If we are not able to successfully develop and commercialize new products, our future
prospects may be limited.
   32




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
    
    properly engraft into the recipients body in the desired manner;
    
    provide the intended therapeutic benefits; or
    
    achieve benefits or a safety profile that is acceptable and better or equal to existing therapies.
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We may not be able to successfully develop our ViaCyte oocyte cryopreservation product candidate.
  We may not be able to raise additional funds necessary to fund our operations.
   
    
    the level of cash flows from sales of our ViaCord product;
    
    the scope and results of our research and development programs;
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
    
    the clinical pathway for each of our product candidates, including the number, size,
scope and cost of clinical trials required to establish safety and efficacy;
    
    the results of litigation;
    
    the timing of and the costs involved in obtaining regulatory approvals for our product
candidates, which could be more lengthy or complex than obtaining approval for a new
conventional drug given the FDAs relatively little experience with cellular-based
therapeutics;
    
    the costs of research and development work focused on developing clinical and
commercial scale processes for manufacturing cellular products and the costs of building
and operating our manufacturing facilities, both in the near-term to support our clinical
activities, and also in anticipation of growing our commercialization activities;
    
    funds spent in connection with acquisitions of related technologies or businesses,
including contingent payments that may be made in connection with our acquisition of
Kourion Therapeutics;
    
    the costs associated with expanding our portfolio of product candidates through
licensing, collaborations or acquisitions;
    
    the costs of increasing or expanding our ViaCord sales and marketing efforts;
    
    the costs of maintaining, expanding and protecting our intellectual property portfolio,
including litigation costs and liabilities; and
    
    our ability to establish and maintain collaborative arrangements and obtain milestones,
royalties and other payments from collaborators.
  We depend on patents and other proprietary rights that may fail to protect our
business.
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36




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Third parties may own or control patents or patent applications that are infringed by our
technologies or product candidates.
    37




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Our success will depend in part on establishing and maintaining effective strategic
partnerships and collaborations.
  38




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Our cell preservation activities are subject to regulations that may impose significant costs
and restrictions on us.
 Cord blood preservation.
   Oocyte cryopreservation.
  39




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We have only limited experience manufacturing cell therapy product candidates, and we may not
be able to manufacture our product candidates in quantities sufficient for clinical studies or for
commercial scale.
  We are dependent on our existing suppliers and establishing relationships with certain other
suppliers for certain components of our product candidates and to manufacture and supply ViaCyte.
The loss of such suppliers or our inability to establish such relationships may delay development
or limit our ability to manufacture our stem cell therapy products or our ViaCyte product
candidate.
   40




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If our cord blood processing and storage facility or our clinical manufacturing facilities are
damaged or destroyed, our business, programs and prospects could be negatively affected.
     41




---



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Our competitors may have greater resources or capabilities or better technologies than we
have, or may succeed in developing better products or develop products more quickly than we do, and
we may not be successful in competing with them.
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Due to the nature of our cell preservation activities, harm to our reputation could have a
significant negative impact on our financial condition, and damage to or loss of our customers
property held in our custody could potentially result in significant legal liability.
   The manufacture and sale of products may expose us to product liability claims for which we
could have substantial liability.
  If we are not able to recruit and retain qualified management and other personnel, we may fail
in developing our technologies and product candidates.
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We may face difficulties in managing and maintaining the growth of our business.
    If we acquire other businesses or technologies the transactions may be dilutive and we may be
unable to integrate them successfully with our business, our financial performance could suffer.
  44




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The
successful commercialization of our  potential cell therapy products
will depend on patients and physicians
obtaining reimbursement for use of these product candidates from third party payers.
    We face potential liability related to the privacy of health information we obtain from
research collaborators or from providers who enroll patients and collect cord blood or human
oocytes.
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Ethical and other concerns surrounding the use of stem cell therapy may negatively affect
regulatory approval or public perception of our products and product candidates, thereby reducing
demand for our products and product candidates.
  Our business involves the use of hazardous materials that could expose us to environmental and
other liability.
  Volatility of Our Stock Price
  
    
    material public announcements;
    
    the data, positive or negative, generated from the development of our product candidates;
    
    setbacks or delays in any of our development programs;
    
    the outcome of material litigation;
    
    the financial results achieved by our cord blood preservation business;
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
    
    the impact of competition;
    
    unusual or unexpectedly high expenses;
    
    developments related to patents and other proprietary rights;
    
    market trends affecting stock prices in our industry; and
    
    economic or other external factors.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Sales of Unregistered
Securities
  Use of Proceeds from Registered Securities
     
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (a)
    
    A proposal to elect Paul Blake, Paul Hastings and Jan van Heek as directors to serve
for a three year term ending in 2009 and until their successors are duly elected and
qualified or their earlier resignation or removal was approved with the following vote:
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Director
    
    For
    
    WithheldPaul Blake
    
    
    26,750,947
    
    
    
    289,462Paul Hastings
    
    
    26,750,842
    
    
    
    289,567Jan van Heek
    
    
    26,751,369
    
    
    
    289,040
 (b)
    
    A proposal to ratify the selection of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2006 was approved
with 26,852,496 votes for, 174,390 votes against, and 13,523 abstentions. There were no
broker non-votes for this proposal.
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  49




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SIGNATURES
  VIACELL, INC.August
14, 2006
    
    /s/ Marc D. BeerMarc D. BeerChief Executive Officer(Principal Executive Officer)August
14, 2006
    
    /s/ Stephen G. DanceStephen G. DanceChief Financial Officer(Principal Financial Officer)
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Exhibit Index
 10.1(1)
    
    Letter agreement between ViaCell, Inc. and James Corbett, dated April 4, 200631.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated by reference to our current report on Form 8-K (No. 0-51110) filed with
the SEC on April 13, 2006. 51